Dating Death: An Empirical Comparison of Medical Underwriters in the U.S. Life Settlements Market

The value of a life settlement investment, manifested through a traded life insurance policy, is highly dependent on the insured’s life expectancy (LE). LE estimation in life settlements relies heavily on medical underwriting. Employing different evaluation processes, underwriters rarely agree on LE estimates, leading to valuation disparities. We use the natural logarithm of the implied mortality multiplier (ln k) to compare the underwriting results of the four major U.S. medical underwriters (ITM, AVS, Fasano, and LSI). ln k is normalized in terms of gender, age, and smoking status, and is therefore a more suitable indicator than LE estimates for high-level comparisons, especially when the compared groups have a heterogeneous make-up. Based on the analysis of life settlement samples from 2011 to 2016, we trace patterns of underwriters’ ln k in both secondary and tertiary markets of life settlements, and investigate systematic differences in their estimation. Our results show that an underwriter can, relative to peers, act more conservatively (issuing longer LE estimates) for one cohort while more aggressively (issuing shorter LE estimates) for another. We also detect signs of intermediaries’ cherry-picking behavior and discuss additional theories that shed light on the convoluted LE landscape.